AstraZeneca Annual Report and Form 20-F Information 2011

Financial ReviewCore operating profit was down 4%. Core R&D expense included asignificant increase in intangible impairments compared with last year;without these, Core operating profit would have declined broadly inline with the revenue. Core earnings per share increased by 7%,benefiting from a lower tax rate and fewer shares outstanding asa result of share repurchases.The actions related to the first two phases of our restructuringprogrammes are now completed, and are on track to deliver$4.3 billion in annual benefits by the end of 2014. These programmeshave played an integral part in the significant improvement in ourCore operating margin since they were launched in early 2007.A new phase was announced in February 2012, and this programmeis expected to deliver a further $1.6 billion in annual benefits by theend of 2014, at a planned cost of $2.1 billion.Our cash generation remains strong, enabling us to invest forfuture growth and value by funding organic investment in R&D,externalisation and capital expenditures while also providing$9.4 billion in net cash distributions to shareholders by way ofdividends and net share repurchases.Simon LowthChief Financial OfficerThe purpose of this Financial Review is to providea balanced and comprehensive analysis of thefinancial performance of the business during2011, the financial position as at the end of theyear and the main business factors and trendswhich could affect the future financialperformance of the business.All growth rates in this Financial Review are expressed at CER unlessnoted otherwise.2011 Business background and results overviewThe business background is covered in The pharmaceutical industrysection from page 15, the Therapy Area Review from page 56, andthe Geographical Review from page 77 and describes in detail thedevelopments in both our products and geographical regions.As described earlier in our Annual Report, sales of our products aredirectly influenced by medical need and are generally paid for byhealth insurance schemes or national healthcare budgets. Ouroperating results can be affected by a number of factors other thanthe delivery of operating plans and normal competition, such as:> The adverse impact on pharmaceutical prices as a result of themacroeconomic and regulatory environment. For instance, althoughthere is no direct governmental control on prices in the US, actionfrom federal and individual state programmes and health insurancebodies is leading to downward pressures on realised prices. In otherparts of the world, there is a variety of price and volume controlmechanisms and retrospective rebates based on sales levels thatare imposed by governments.> The risk of generic competition following loss of patent protection orpatent expiry or an ‘at risk’ launch by a competitor, with the potentialadverse effects on sales volumes and prices. For example in 2011,our performance was affected by generic competition in the US forArimidex and Toprol-XL. Further details of patent expiries for our keymarketed products are included in the Patent expiries section onpage 35.> The timings of new product launches, which can be influencedby national regulators, and the risk that such new products do notsucceed as anticipated, together with the rate of sales growthand costs following new product launches.> Currency fluctuations. Our functional and reporting currency isthe US dollar, but we have substantial exposures to othercurrencies, in particular the euro, Japanese yen, pound sterlingand Swedish krona.> Macro factors such as greater demand from an ageing populationand increasing requirements of servicing Emerging Markets.Over the longer term, the success of our R&D is crucial and we devotesubstantial resources to this area. The benefits of this investmentemerge over the long term and there is considerable inherentuncertainty as to whether and when it will generate future products.The most significant features of our financial results in 2011 are:> Revenue was down 2% at $33,591 million (Reported: up 1%).> Strong double digit sales growth at CER for Crestor, Seroquel XRand Symbicort.> Emerging Markets revenue increased by 10% (Reported: 11%).> Revenue performance reflects the loss of nearly $2 billion of revenuefrom generic competition, as well as a further $1 billion lost to theimpact of government price interventions.> Core operating profit was down 4% (Reported: 3%) to $13,167 million.> Operating profit up 10% (Reported: 11%) to $12,795 million.> The sale of Astra Tech, which resulted in a gain of $1,483 millionand was excluded from Core operating profit.> Core operating margin of 39.2% of revenue was down 1.2percentage points (Reported: 1.6 percentage points), as benefitsarising from higher gross margin and lower SG&A spend at CERwere more than offset by increased expenditures in R&D and lowerCore other income. Reported operating margin was 38.1%.> Core EPS increased by 7% (Reported: 9%) to $7.28. Basic EPSwas up 29% (Reported: 31%) to $7.33. Basic and Core EPSbenefited from the lower number of shares outstanding resultingfrom net share repurchases and a lower effective tax rate comparedwith last year.> Dividends paid increased to $3,764 million (2010: $3,361 million).Net share repurchases totalled $5,606 million.> Total restructuring costs associated with the global programme toreshape the cost base of the business were $1,161 million in 2011.This brings the total restructuring costs charged to 31 December2011 to $4,869 million.Business ReviewAstraZeneca Annual Report and Form 20-F Information 2011Financial Review 83